Module 5: A look at screening new product ideas

Introduction:

Screening in new product development has a multitude of meanings. As will be explained, it is

viewed as the initial review of ideas emanating from the idea generation phase. At this stage,
decisions regarding the precise forms of the product – the materials, production processes and
so on – have not been taken, so the precise details of design, appeal, dimensions and
comparability with other products on the market cannot be assessed. Despite these levels and
dimension of uncertainty, screening has been shown to be important stage of the NPD process.

How do you know if your new product idea is actually a good idea? What if you have two or
three good ideas, but can only fund one project? To make these critical decisions in new
product development you need to implement an idea screening process.

It’s very important to have an idea screening process in place during the beginning stage of new
product development. Developing new products that do well in the marketplace is a difficult
task that requires company funds and dedicated resources. Many new products never end up
launching or fail once they get to market, causing a huge waste of company money and time.
Using an idea screening process will help focus attention to more highly successful product
ideas.

Module Objectives:

 Understand the process of new product evaluation as one of continuous refinement;

 Appreciate that the role of screening is as a ‘first’ evaluation;
 Be able to articulate the limitations of screening;
 Be conversant with the types of screen employed by industry; and
 Be able to design and implement a screening procedure commensurate with the strategic
direction of a firm.

What is Screening?

A process used to evaluate innovative product ideas, strategies and marketing trends. Idea
screening criteria are used to determine compatibility with overall business objectives and
whether the idea would offer a viable return on investment. Whatever does not meet these
criteria is typically discarded.

The purpose of idea generation is to create a large pool of ideas. The purpose of this stage is to
pare these down to those that are genuinely worth pursuing. Companies have different
methods for doing this from product review committees to formal market research. It is helpful
at this stage to have a checklist that can be used to rate each idea based on the factors required
for successfully launching the product in the marketplace and their relative importance. Against
these, management can assess how well the idea fits with the company’s marketing skills and
experience and other capabilities. Finally, the management can obtain an overall rating of the
company’s ability to launch the product successfully.

The Importance of Screening

Despite all the caveats, screening is an important stage of new product development process.
All estimation of future success or failure of a new product is fraught with inexactitude, often
because data are unreliable or incomplete. At this stage, there are no product specifications,
materials and costs may only be estimated, and market potential is a question of ‘gut feel’
rather than measurement. It is, therefore, tempting to think that this stage of screening is
pretty useless. However, unless managers have unlimited resources they are not going to
devote them all to emergent new product ideas. Therefore, managers must find ways of
comparing one new product idea with another, in order to devote resources to those with
greatest apparent opportunities for return and to cut down expenditures on those projects
with limited potential. Research have shown that companies which screened new product ideas
had more successful new product launches and that these were less costly than for companies
not employing a screening stage. The decrease in costs that screening serves is based on two
ideas: the idea mortality rate and the cumulative expenditure curve.

The Mortality Rate

There are different rates of kill for new product ideas. There is a slow kill rate, where many new
product ideas are being carried through generation and development stages, but being killed
off before market launch. The implications of this are:

 Wasted development and evaluation expenditure on ideas that would not be launched
and which, therefore, would not generate return
 Development resources being spread over a larger number of development projects,
jeopardizing the resources and quality given to any one
 Longer development times as effort is spread over a larger number of projects

Although undesirable, these implications result from the desire to kill projects only when it
becomes clear that their potential is too low for a full market launch. As discussed above initial
screening is inexact because of the information that can be collected regarding the market
potential is inexact, based as it is on the assessment of an initial idea, whose form, specification
and attractiveness are yet to be determined. By putting more ideas through the refining stages
of concept development and testing, information regarding feasibility, market potential and so
on becomes more reliable. The viability of this approach may be greater where costs of
development are low, as in the case of services, where physical developments is not as
expensive or time consuming.

A faster kill rate is where many ideas are killed off early in their development cycle, before the
physical development takes place. The implications of this are:

 Lower costs, as concept and product development occurs for a smaller number of
products
 Possible killing of products with potential due to insufficient development and testing

The cost assumptions underlying the implications for these kill rates are associated with the
notion of cumulative expenditures.

This average curve does not represent every industry. In some industries, where R&D costs are
extremely high, the early expenditures are higher than would be suggested by the above figure.
Serious investment occurs when the prototypes or first samples are manufactured, because at
this stage, investment is made in materials, tooling and subsequent testing. This can be
exacerbated where frequent modification and redevelopment are required in the light of
practical experience of manufacture and testing. It follows, therefore, that where evaluation
and testing can be done relatively cheaply, i.e. before the physical development of a new
product takes place, the overall development costs are likely to be lower. Further, if these
development activities can take place for fewer ideas, based on rigorous screening, costs will be
lower still, and accuracy of development and testing may be increased, as resources can be
more sharply focused.

The Influence of risk screening

Ultimately, the stringency of the screen must depend on how managers view risks. There are
two basic types of errors in screening which entail risks:

 Killing off product ideas which may have potential

 Developing product ideas which might fail

The perceived seriousness of the risks of each type of error depends on the cumulative costs
embedded in the development cycle of a given company and the extent to which the company
can endure the results of the risks. The errors and their associated risks are shown in the table
below:

Eventual Outcome Screening Decisions

New Product Success
New Product Failure
Drop Idea
Wrong Decision (A)
 Lost revenue
 Lost competitive standing
Correct Decision
Develop Idea
Correct Decision
Wrong Decision (B)
 Lost investment
 Opportunity Cost
 Lost Market Standing

Two correct decisions are possible – dropping a product that would fail and developing a
product that would succeed. Clearly, the second of these is the more desirable. Equally, two
wrong decisions are possible: dropping a product that would succeed and developing a product
that would fail.

On the surface, it may seem that dropping a product line that would succeed is the lesser of the
two evils, since although nothing has been gained, nothing has been lost. On the other hand,
development of a product which fails not only wastes investment which will not yield return,
but it may also have internal and external negative impacts, and the development may have
eclipsed the opportunity to invest in a more successful project.

While the assessment of new ideas continues at each stage of the evaluation process, it begins
at the point where the new product ideas are screened. As suggested by many marketers,
screening cannot be exact – it cannot give a definite picture of the potential of a new product
idea. It must, however, be constructed in such a way as to give the possible assessment of the
likelihood of potential so that the decision can be made as to whether or not to take the idea
onto the next stage of development and assessment. This suggests that its orientation must be
strategic, rather than detailed.

Types of Screens

The six types of screen are:

 Growth role
 Category
 Strategic Role
 New Product Type
 Internal Strength
 Financial Risks
Each type is focused on a particular set of issues against which new product ideas might be
evaluated, and each set, or combination of sets would be selected according to a company’s
product strategy.

Growth Role Screens – can be used where the new product strategy stipulates a growth role
for its new product development efforts. These screens demand of new product ideas that
they:

 Enter a new category of business that represents a net addition to the company
portfolio
 Expand a company’s global market share within a product category
 Deliver a price advantage which will allow the company to increase market share at the
expense of the competition
 Create a whole new category of product-market, strategically expanding sales

Category Screens – can be used to encourage new product projects in categories where the
capabilities of the company are most suited. For example where a company has high costs,
ideas falling into product –market categories of low value added would be avoided. Equally, it is
also important that product-market categories are large enough and have lower levels of
competitive industry. These screens demand that a new product idea targets a category which:

 Has proven consumer attractiveness (in substantial numbers)

 Is not dominated by one or two major players
 Demonstrates growth potential
 Has room for additional products which might offer benefits to the consumer or
customer
 Does not require marketing or other investment which the company cannot match
easily.

The usefulness of category screen is that it provides source guidelines for judging new areas or
categories that company can explore.

Strategic Role Screens – are usually statements which define competitive, market and business
requirements that new products will be expected to satisfy. These strategic roles can differ
from industry to industry, and from company to company, but will flow directly from new
product strategy. Issues relating to strategic role screens may demand those new product
ideas:

 Are technologically superior to products currently available

 Capitalize on existing distribution and delivery systems
 Are able to provide a foothold in product markets currently outside the company’s
sphere of activity
 Allow the company to develop technical or marketing skills in a new sphere
 Are aimed at growth markets
 Will rise up excess capacity

Screens for new product types – Clearly, the screens used for ‘modified’ new products will be
different from those used for ‘radical’ new products. As modified versions of products have
associated products and markets from which adjacent information can be gleaned and
extrapolated, it follows that the screen types used for ‘modified’ new products can be more
stringent than those for “radically’ new products. In the latter case the uncertainty levels
regarding how to develop the physical product in the light of the current market trends (which
may not yet exists) are much higher; so are levels of risk. This said, potential paybacks from
radically new products tend to be higher than for modifications of older products, so it is
important that screens take account of the balance between uncertainty, risk and reward. This
would imply using a screen which varies the financial payback demand depending upon the
level of newness implied by the new product idea. This suggests screening issues which classify
ideas into:

 New to the world

 New to the market
 New to the company
 A new (additional) product line item

and which set criteria appropriate to the varying level of risk in each one.

Internal strength screens – are usually set up to gauge the level of difficulty with which a new
product idea can be developed, manufactured and sold. Screens of this nature should not be
used to stop a potential new product which falls foul of several criteria, but that this should
cause reconsideration, at least. Internal strength screens raise issues which examine whether
the idea:

 Make use of patented technology

 Increases the use of an ‘efficient manufacturing system’
 Capitalizes on existing marketing and sales efforts
 Exploits technological, engineering, design or marketing skills

This issues seem similar to those raised by ‘category screens’, and inasmuch as the latter may
focus on internal strengths that a new product idea in a specific category may exploit, the two
are, indeed similar. However, category screens also focus on the competitive position, and are
attempting to ‘screen out’ whole categories of product-market which may be deemed
inappropriate. On the other hand, internal strength screens will assess every idea against
strengths – the more the idea builds on strength, the better.

Financial Screens – are important, given that the objective of most NPD projects is to make
money. However, as stated previously, it is often difficult to assess precisely how much money
is likely to be made from a given product idea, early on in the NPC process. Financial screen
usage criteria includes revenue size, pre-tax profit contribution, ROI, payback period, gross
margin and return on assets. Financial screens should be ‘the final set of screens’ which would
be used after ‘business analysis’.

To sum up thus far, it has been suggested that, despite the relative unreliability of the screening
stage, it is an important step in the new product development process, if linked to strategy. This
suggests that customizing screening to the strategic context of the firm is a sensible way to
ensure effective screening.

Screening factors

The strong screening factors, with which the product idea must agree, arise from the project
aim and the project constraints.

The overall aims of the company always take precedence over other factors. No matter how
brilliant a product idea is in isolation, it is rejected if it does not fit with the company's business
strategy, in particular the product strategy. There may be an outstanding product idea which
may change the direction of the company's business strategy, but it has to be taken from the
project ideas and directed back into the top management area. This product idea has to be
viewed in its scale and suitability for the company, and decisions within the company must be
taken at top management level.

The constraints identified at the beginning of the project are also important screening factors. A
product may be dropped for many reasons: it does not meet the food regulations; there is not
sufficient money to develop or to produce it; the managing director does not like it! The factors
used in screening should be as objective as possible, but sometimes subjective decisions are
made.
Marketing factors:
       Potential market size
       Compatibility of market image with company's product lines
       Relationship to competing products
       Compatibility with existing or specified market channels
       Access to suitable physical distribution systems
       Fits into an acceptable pricing structure
       Relationship to promotional methods and resources
       Marketing resources needed to produce success

Production factors:
       Compatibility with existing product lines
       Availability of processing equipment
       Availability of raw materials and ingredients
       Availability of technical skills to produce the product
       Availability of production time
       Agreement with any legal requirements
       Cost and availability of new resources required

Development factors:
       Knowledge needed for development
       Available knowledge and skills
       Available time and human resources
       Development funds needed and available
       Compatibility with existing strengths
       Development difficulties and risks of failure

Financial factors:
       Compatibility of development costs with financial resources
       Capital investment resources needed and available
       Finance needed and available for market launch and ongoing product support
       Profits or returns on investment required

Significant factors are many and these are just a few that often occur. The choice of screening
factors depends on the type of ideas, the company and its resources, the company's
environment and the level of innovation. There could be many factors but it is not humanly
possible to use them all, so that the factors are ranked in importance and only the most critical
chosen in the first screening, although others may be checked later. Factors can be rated as
crucial, most important, important and minor.

PRODUCT IDEAS SCREENING PROCEDURES

Screening is usually done in stages. Simple methods may be used in the early stages with more
detailed screening undertaken as the number of products is reduced and more technical,
marketing and financial information becomes available. As screening proceeds, the number of
product ideas decrease, the amount of information increases, the number of screening factors
increase and the accuracy improves.

A possible screening sequence could be:

(25 ideas)
Pass/fail screening using aim and constraints

(10 ideas)
Checklist screening using market suitability and technical possibility

(2 ideas)

Economic evaluation using predicted market size, prices and production costs
(1 idea)
First the ideas are studied to see if they are compatible with the aim, constraints and any other
crucial factors in a sequential, pass/fail screening in which the product idea is considered
against each crucial factor in sequence, and a simple pass/fail decision is made. If they fail, they
are dropped from further consideration. The remaining ideas are scored against each other on
the important factors in a checklist screening, the scores added to give a total score and the
lowest scoring ideas are dropped. The scales used can be 0 - 5 or 0 - 10 depending on the
accuracy of the knowledge used.

Probability screening is also used; instead of giving a single score on a factor for the product
idea, the probabilities of achieving the different scores on the scale are predicted.

At this point, detailed information on prices, production and distribution costs, market
potentials and investment costs are collected and an economic evaluation made to select the
product which has the predicted highest sales revenue, profit, rate of return on investment or
some other financial criterion. This economic evaluation is repeated at different stages of the
project, together with a check on all the factors used in earlier screenings. Minor factors are
included on a checklist at the end of the product idea screening to see that they are being met
in the final product concept. The packaging and the promotion can be screened on these
factors as well as the products.

The advantages of a systematic screening approach are that it provides:

       uniform method of product idea evaluation;

       point of reference throughout the project;
       systematic approach;
       focus on business strategy and top management decisions.

PEOPLE INVOLVED IN IDEA SCREENING

A variety of people are involved in screening products.

The initial screening is carried out by company staff with a simple pass/fail on the aim,
constraints and other crucial factors. This may be done by one person but it is preferable to
have representatives from different areas of the company.

Once product descriptions are written it is important to involve the consumer, or in industrial
and food service marketing the customer. This usually involves focus groups initially, but as the
number of products is reduced, consumer or market surveys on three to five products are
carried out to give quantitative data on the acceptance and the predicted market potential.

Company personnel are also involved - again in groups or by a survey. It is often useful to have
individual people from different areas of the company to score the product ideas on several
factors, and then bring them together. This highlights any problems which could occur in
further development. Checklist or probability techniques can be used.

The final screening is of course done by top management at the end of the first stage based on
feasibility studies of the final product concept.

SUMMARY

Idea generation and screening are used throughout the project, although the initial product
idea generation and screening is the most important and has been emphasized in this chapter.

All idea generation and screening needs to be creative, knowledgeable and systematic. This is
not an easy mix to optimize, but it is important as it leads to innovative and successful products
launched on the market.

Creative people are identified in the company and an atmosphere generated to encourage their
creativity and so build a strong knowledge base on marketing, technology and consumers. The
consumers for foods and the customers for ingredients are also involved in idea generation and
screening so that their needs and wants are incorporated. Various operational areas in the
company are actively involved as well as the product development and R&D personnel. The
process is systematic so as to involve all these people and to develop and optimize the
outcomes.